Special State Report - April 2015 Revenue Forecast Summary

April 2015 Indiana State Revenue Forecast Summary

By John Grew

Indiana University Office of State Relations

State revenue and economic forecasts are produced in December and April (prior to the beginning of a new biennium) and the following December after the biennium has begun. While the December, 2014 forecast provided the Governor and legislators with a projection of available funds for the upcoming biennium to guide initial development of the biennial budget, the April forecast provides the latest revenue projection to guide legislators during final deliberations over the biennial budget during the conference committee process.

Revenue Forecast

Revenue collections for the first nine months of the fiscal year (July, 2014 through March, 2015) were $109 million below target. Most of the shortfall was attributable to lagging individual income tax collections. Reflecting this tax collection performance, the FY 2015 forecast was decreased by $105 million from the amount projected in December, 2014. The reduction in the FY 2015 base carries over to the upcoming biennium by reducing the amounts forecast in December by $119 million in FY 2016 and $94 million in FY 2017.

Here are the amounts forecast for each of the fiscal years (in $ millions):

ActualFY 2014 FY 2015 FY 2016 FY 2017

Total Revenue $14,402 $14,625 $14,971 $15,478

Yr. over Yr. Change $223 $346 $507

Yr. over Yr. % Change 1.5% 2.4% 3.4%

Change from Dec. 2014 Forecast ($105) ($119) ($94)

Conclusion

Indiana is continuing to recover from the Great Recession, but progress is slow and revenue performance tepid for a mid-cycle period of an economic expansion. Individual income tax revenue has been particularly disappointing and is forecast to continue to grow modestly (notwithstanding a small cut in the tax rate), as personal income growth lags, despite significant reductions in unemployment. Fortunately, sales tax revenue growth has been relatively strong in FY 2015, but is projected to moderate. While gaming revenue continues to decline due to competition from surrounding states, the forecast anticipates a bottoming-out of the decline in FY 2017. Finally, tax cuts enacted in recent legislative sessions continue to be phased-in, further reducing state revenue growth during the forecast period.